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AIM’s tax status under threat?

The possibility that a FTSE 100 company may move to AIM has caused concern in some quarters that this could threaten the current generous tax status of the market.

Property giant Canary Wharf is the subject of a £1.6 billion bid from investment bank Morgan Stanley that would see shareholders receive a mixture of cash and AIM-listed shares in a new vehicle. This would allow shareholders to take advantage of AIM’s lenient flotation rules and attractive tax benefits.

This deal is the latest in a line of innovative flotations on AIM, the London Stock Exchange’s market designed for small and fast-growing companies. These have seen stockbroker Collins Stewart buy utility concern Northumbrian Water and holiday operator Center Parcs outright from private equity houses and sell them onto institutions, accompanied by an ‘accelerated’ AIM flotation.

Shareholders would only be liable for capital gains tax at ten per cent after two years. The shares would be immune from inheritance tax after this period as well. Both advantages would not be available if the company floated on the Full List.

These generous rules were cited as the reason for leading stockbroker Cazenove’s mooted flotation on AIM in 2002 rather than the Full List.

However, Chilton Taylor, an AIM expert at accountants Baker Tilley, comments that ‘if there is a flood of companies using AIM purely for the tax breaks, I think the [Inland] Revenue would look at its status again.’

The London Stock Exchange is not worried that huge companies are now using the market that the Exchange initially designed for entrepreneurial and fast-growing companies. The Exchange’s Richard Webster-Smith said the latest deals ‘merely illustrate the maturity and flexibility of AIM. The LSE offers a range of markets for companies to join. Companies make their decisions based on this range.’

Baker Tilly’s Taylor adds that ‘AIM is the destination of choice for companies of up to £100 million and beyond. It’s unsurprising it is attracting larger companies.’

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